Mistakenly Collected the Wrong State Sales Tax? Too Bad for You.

A recent Letter of Findings issued by the Indiana Department of Revenue reminds how important it is for businesses to collect and remit sales tax in the proper jurisdictions.

The case involves a business that mistakenly collected and remitted Kentucky sales tax on transactions that took place in Indiana between January 2006 and 2011. The Taxpayer now admits it should have collected Indiana sales tax, but argues that "at the time of the transactions it did not know it had a duty to collect Indiana sales tax and … collected Kentucky sales tax on the transactions." The business is a national corporation that, during the time period examined, had a branch office in Kentucky and no office in Indiana.

The Indiana Department of Revenue determined that, taxes paid to Kentucky aside, "Taxpayer would still not have been relieved of its obligation to collect and remit Indiana sales tax, nor would it have received credit for any Kentucky sales tax it may have collected and remitted."

The department points out that, pursuant to IC § 6-2.5-3-5, "sales tax, purchase tax, or use tax paid to another state…" may be used as "a credit against the use tax imposed… ." However, it may not be used as a credit against sales tax. The case in question regards sales tax.

In other words, the fact that the Taxpayer says it collected and remitted Kentucky sales tax on certain transactions is irrelevant. It now owes Indiana sales tax on them and "does not receive a credit for the sales tax paid to Kentucky."

Unfortunately for the Taxpayer, it is now too late to request a refund from the state of Kentucky.

Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.